Speech by President Barroso on the preparations of the European Council of June 2013

European Parliament plenary session/Strasbourg

12 June 2013

Dear President,

President in office of the Council,

Honourable members,

The next European Council takes place in a very challenging context. Several years of very weak or negative growth have led to very high levels of unemployment. Youth unemployment and poverty are rising in many parts of Europe.

We need to go further with our efforts for growth at the European level and in the Member States. And I see this European Council mainly focused on two issues: employment, namely youth employment, and financing the economy, namely SMEs.

The June European Council is expected to endorse the Country Specific Recommendations which the Commission presented two weeks ago under the third European Semester of economic policy coordination at the European level.

Our analysis has shown that in spite of all the difficulties the European Union and its Member States are making progress in meeting many of the challenges.

A rebalancing of the EU economy is taking place on the back of wide-ranging reforms but is not yet finished. Significant adjustments are underway simultaneously across Europe and need to be completed, also because of the interdependence of our economies.

Fiscal consolidation is on-going and releasing pressure from the markets. This is precisely why it must continue in order to ensure the return to sustainable growth. We have seen, we have learned the hard way, that growth fuelled by high levels of debt, public debt or private debt is simply not sustainable.

Reforms for competitiveness have been undertaken, namely to improve the resilience and flexibility of labour markets. This must be complemented by further urgent action to address the unacceptably high levels of unemployment and increasing poverty rates in a number of our Member States. We must support the young to succeed in the transition from education to work.

Restoring lending to SMEs, indeed, to the economy in general, remains an absolute priority. Lending conditions remain tight and the supply of credit limited in spite of massive support given to the banking sector. We need solutions for businesses with solid business plans that cannot get financing.

Above all, we need to accelerate these structural reforms. We need to step up their pace across the European Union to secure recovery and ensure the rebalancing of the economy. "Deficit" countries need to boost their competitiveness. "Surplus" countries need to remove the structural obstacles to the growth of their domestic demand.

The Commission's country-specific recommendations clearly say that Member States can, and should, do more to help themselves get back to growth and move Europe beyond the crisis.

Honourable Members,

Employment creation and measures that will restore lending to the SMEs were already highlighted as priorities in our Annual Growth Survey and are at the core of our European Semester.

Let me focus on the first point. 26 Million Europeans are unemployed, of whom over 6 Million are young people.

We must deliver effective measures to tackle this social crisis here and now. To this end, the Commission in its efforts will leave no stone unturned.

The Commission and the European Parliament have long been pushing for concrete action in terms of employment. Indeed, as some of you remember, it was in 2009 that I first proposed that the European Council should meet specifically to address the issue of employment. Frankly, at the time, there was little interest in this idea. Instead of a special European Council, there was a meeting of the trio of Presidencies. We met in Prague with the Prime Minister of the Czech Republic, the Prime Minister of Sweden and the Minister of Labour of Spain. I welcome the fact that we now have a consensus among the Member States to move this forward as a priority and that different Member States are now taking initiatives nationally and bilaterally. It is important that all these initiatives are integrated in the European Framework to build momentum.

The forthcoming European Council should give a new impulse, building on what has already been set in motion.

Almost a year and a half ago the Commission established Youth Employment Action Teams for those Member States where youth unemployment was at its highest. Over €16 billion from the structural funds has been reallocated. This has allowed eight Member States to establish national youth action plans backed by real resources and we are seeing the first results on the ground.

For example in Ireland an education and training fund, "Momentum", will provide skills training to 6.500 long-term unemployed. The ESF will contribute 50%, around €10 million, to this fund.

In Slovakia projects are being implemented with micro-enterprises and SMEs worth of €70 million from the ESF. To date 6.200 new jobs were created.

In Latvia the focus is on upgrading the vocational education schools in order to double the offer of vocational training to cover 40% of young unemployed people.

And in Portugal a major initiative called "Impulso Jovem" aims to promote youth employment and job creation as well as targeted support for private sector. Some 90 000 young people and 4 500 SMEs are expected to benefit by 2015.

In Greece a major reprogramming has allowed the creation of a national youth action plan with EU funding of €571 million.

And while in some countries these programmes took time to start, there will be hundreds of thousands of young people across Europe that will benefit.

But more work is needed and more work is already underway because unemployment affects not hundreds of thousands but millions across Europe.

So we need more to make the youth guarantee a reality. The Youth Employment Initiative should make a real difference in parts of Europe where the youth unemployment rate is above 25%. From our side we are working to frontload this initiative to hit the ground running at the very start of 2014. That means concentrating the financing in the very first years of the next programming period. By this I mean 2014, 2015 and 2016. These efforts need to be complemented with an appropriate allocation from the ESF. It is therefore essential to assure a significant minimum share of the European Social Fund within the overall structural funds.

Programmes for education and mobility of young people such as the proposed "Erasmus for all" are crucial. The "Your First EURES Job" programme will be strengthened by using the ESF to support mobility of young jobseekers across Europe.

Well-established apprenticeships systems are a feature of the Member States with a better performance in terms of youth employment: for instance, Austria and Germany. Therefore the Commission is launching on 2nd July the "European Alliance for Apprenticeships" to improve the quality and supply of apprenticeships all over EU, by bringing together national authorities, social partners, companies and relevant stakeholders.

Addressing skills mismatch in sectors with recognised job creation potential is also a priority. The Commission has launched a multi-stakeholder partnership, the "grand coalition for digital jobs" to tackle the challenge to the foreseen 900.000 vacancies in ICT sector.

Action for employment is a focus of the measures set out for the four programme countries. Our proposed Country Specific recommendations include youth employment related recommendations for a further 17 Member States: recommendations ranging from improving vocational training and effective employment services to reducing skill mismatches and expanding apprenticeships.

We will support the Member States wherever we can with the instruments that we have at the European level and we will intensify work with the social partners, who have a vital role to play in this matter.

President, Honourable Members,

To create jobs we need growth and for growth we need investment, smart investment – at the European level, in the Member States.

The first point I want to make here is that Europe can have a growth fund, a fund worth almost €1 trillion, if the Multi-annual Financial Framework is adopted.

That's why I urge all the Member States to co-operate with the Irish presidency and to make a move in accepting the justified requests of the European Parliament, for example on flexibility. As the Commission has always said the difference between commitments and payments in the European Council conclusions makes flexibility indispensable to a final agreement for the MFF.

If the MFF is to have the desired impact programming should be completed as soon as possible. Some of our Member States have a dramatic need for the investment it will bring. And all Member States, and I underline, all Member States, have to realise there is no time to lose.

Honourable members,

Ahead of the European Council I will report together with the European Investment Bank on possible short term measures to restore lending to the economy. Our focus will be first of all on the financing of SMEs.

SMEs in particular are feeling the pinch as bank loans dry up. SMEs, in fact all our companies, need a return to normal lending conditions. This need is most acute in those Member States which have been hardest hit by the crisis.

Excessively tight access to credit remains a key obstacle to the revival of economic activity – especially in our most vulnerable Member States. The differential in lending spread across the Union implies a wide variation in financing conditions for companies in the Single Market and namely in the euro area. These spreads seem to relate less to the intrinsic credit quality of the borrower and more to their geographical location! This is absurd in an economic and monetary union. SMEs are particularly affected by these constraints in the credit supply.

Here is the vicious circle which we need to break. Those countries most in need of investment and of a return to a normal financial sector are those where national actions alone are unlikely to achieve this result in the short term. If there is no confidence banks will not lend and firms will be reluctant to borrow.

A European consensus will help restore confidence, break the vicious circle and boost economic activity. Let me give you some examples. The net savings rate in Portugal, in spite of all the extreme difficulties that the country is facing, is higher than at any time in the last decade. In France, in Ireland, in Slovakia, in Sweden and in the UK savings rates post crisis are above; sometimes well above, pre-2008 levels. Yet savers are not prepared to invest their funds, nor is there a willingness to consume. That shows that confidence is key for growth.

We are also exploring other ways to improve access to finance. We need to provide companies with alternatives to bank loans – for example, private equity, risk-sharing instruments with the European Investment Bank. We will soon come forward with a proposal for a regulatory framework for long-term investment funds.

The European Commission was at the forefront of the successful efforts to increase the capital of the EIB. We now hope that the Bank will be able to contribute to our efforts to improve access to finance. We are working actively with the EIB to that end.

Three types of 'joint instrument' are currently under consideration. All three involve the pooling of resources from the structural funds, Horizon 2020, COSME and the EIB/EIF (and other public banks) to increase lending to SMEs by providing guarantees to banks. In every case the provision of public support will be conditioned on the benefits being passed through to SMEs in the form of increased lending.

Honourable members,

Restoring this confidence by setting out a vision of where the European economy is headed is the reason for working towards deeper economic and monetary union.

The progress of Latvia towards joining the Eurozone is a sign of confidence in the euro. It's a concrete message. Contrary to what some have predicted, what is happening is not that countries are leaving the Euro but new countries are joining the Euro.

Creating a banking union is essential. It is the most important short term action in the process of deepening economic and monetary union and our efforts in the banking union cannot be relaxed.

Next week the Council should reach a general approach on the bank recovery and resolution directive. The Single Supervisory Mechanism will be formally adopted before the summer. This paves the way for the Commission's proposal for a Single Resolution Mechanism which will be ready in the coming weeks.

At the same time the Commission is working on the other dimensions of EMU; on the ex-ante coordination of major economic reforms; on the Competitiveness and convergence instrument and most importantly on the social dimension of EMU. In all of these areas the Commission will come forward with specific proposals.

We must also do more on implementation. For this, we need to complete and fully enact the Compact for Growth and Jobs which also includes the important measures to strengthen the internal market, presented as Single Market Acts I and II.

Let me take just one example, an example that we have discussed yesterday in the college of Commissioners: the digital market and specifically telecommunications. One of the main problems we have is that we do not have one single market in Europe in this time of digital transformation. Indeed, instead of one single digital market we have 27 mini-markets, even Micro- markets. I would even say nano-markets, when you compare them to the other big markets in the world, like the United States or China. This is why we have to address this issue, and the Commission will put forward new proposals in September.

We have also worked on proposals to develop an industrial policy which delivers industrial competitiveness. The Steel Action Plan which we adopted yesterday shows that we are responsive to the difficulties which European industries face.

The Commission is also working to reduce the overall burden of regulation especially on SMEs. Our forthcoming Communication on top ten burdensome regulations is an example of how we are working to make life easier for European firms.

At the same time the work on a fairer sharing of the burden between all parts of society is continuing. Just yesterday the Commission adopted a proposal for the automatic exchange of information on savings taxing. We will continue to deliver on the tax agenda and in G8 in Northern Ireland next week we will push forward this priority at global level. Indeed, we will work in the other priorities set out by the British G8 Presidency: transparency and trade.

As a conclusion, let me tell you, honourable members,

This is the time to develop what I could call a European consensus: if we do not pull together, we will be pulled apart.

We need a consensus built on practical steps to resolve the crisis. A consensus not just on the need for growth and jobs, but on the means to achieve this. A consensus for an economically more competitive Europe and a socially more inclusive Europe.

Such a consensus is not just a political formula. It is of critical importance for economic confidence for investors and for consumers.

Because divisions and contradictory messages coming from different capitals are counter-productive and undermine confidence – confidence we need from financial markets, from businesses, and namely from our citizens!

In a nutshell the consensus has three elements:

First, On-going fiscal consolidation should continue at a pace that reflects the situation in each country and is focussed on structural rather than nominal deficits.

Second, Member States should intensify in parallel their efforts on the implementation of structural reforms for competitiveness.

Third, because many of these structural measures take time before delivering concrete results in terms of employment creation, specific focused action should be taken to deliver short term results for the unemployed, and especially for the young.

We need action to build on the foundations we have put in place. In the European Council I will urge the Member States to assume their responsibilities, implement what we have already agreed and commit to effective action for the future.

I know the Commission can count on the support of this Parliament on our agenda for growth and jobs.